Congress Aims for Timely Funding Deal

It looks like Congress made a New Year’s Resolution of its own: getting its homework done on time!

Congress appears to have reached a tentative deal to keep the government open and fund it through Sept. 30. This is in stark contrast to the last two times (October and November of last year) in which a last-minute extension was passed with little notice and less than a day to spare.

So, the question is: what changed?

First, negotiations quietly began between Senate leadership last month. Previously, Minority Leader Mitch McConnell had been giving the Republican controlled House the reins in attempting to negotiate a deal that included more conservative priorities. As that approach has continued to fail and as we now enter the election year, McConnell taking over makes sense.

Second, as I’ve already alluded to, the looming elections tend to bring the parties together as they each try to avoid mistakes that voters are more likely to recall when they go to the polls. For example, even if we had shut down last year in October, if a bipartisan deal was reached in January this year, most voters would recall that Congress did its job, not the failure that occurred more than a year before they cast their ballots. That is far less likely to be the case if Congress shuts down the government this year.

Third, the sheer volume of bills that need to be passed this year demands that Congress step up and make some progress. Congress must pass a tax bill to be implemented before taxes are due in April. That’s because it is likely to include several retroactive provisions that businesses especially want to utilize. Also on the docket are the stalled Farm Bill and FAA Reauthorization, although most expect Congress to punt on the Farm Bill until next year.

Also in the forefront of Republican’s minds are the abysmal productivity statistics for the first year of the Republican-controlled House. In 2023 Congress passed just 34 bills into law, which is the lowest productivity in decades and less than half the number of bills that normally get passed under split control of the House, Senate, and Presidency. Of those, several were just the temporary government funding extensions passed to give Congress more time to get its work done. For those of us working in politics in DC, the year has felt unproductive, and it’s one part gratifying and one part depressing to see this reflected so clearly in the data.

Tax Bill Preview

While negotiators aren’t done writing the bill, Congress is expected to take up a moderately sized bipartisan tax package before the end of January. Specifically, Republicans are looking to once again make research and development costs deductible, as opposed to amortized as they are now. They’re also hoping to do the same for capital expenses. For Democrats, the increased Child Tax Credit of $3,000 for children ages six to 17 (up from $2,000) expired at the end of last year, and they are looking to have it retroactively renewed through 2025, when most of the Trump tax provisions expire, to give themselves more leverage during that debate.

The bottom line: Although these provisions don’t amount to what has historically been called a ‘fiscal cliff’, we are talking about more than $50 billion in tax cuts and incentives. This comes as welcome relief for most U.S. consumers and businesses who are still playing catch up from nearly a year of 6% or higher inflation, and it will likely have a net positive impact on the economy.

Of course, there is more than enough time for negotiations to break down and Congress to stall out, so we’ll just have to wait and see.